Individual stocks can rise 10%, 25%, or even higher in a short period of time. And they can fall just as far, just as quickly. For example, shares of homebuilder Standard Pacific dropped 29% on Monday on fears about how the government's bailout will affect its business.
Big drops in share prices can sometimes signal material defects or new risks. But at other times, they're simply pullbacks after a long run-up. Fortunately, we have Motley Fool CAPS, a great resource to help us understand the larger picture behind big price drops.
Is the sky falling?
CAPS includes more than just the crowd's opinions. Its best-performing members' votes count more in shaping each company's rating than do the picks of their poorer-performing peers. That way, investors can intelligently use the collective wisdom of more than 115,000 CAPS members to make better decisions.
We'll use CAPS' handy stock screening tool to quickly zero in on companies whose stock prices have fallen by at least 30% in the past four weeks, and that have a market cap greater than $100 million and a beta of less than 3.
Here's a sample of stocks our CAPS screen returned:
|
Company |
CAPS Rating
|
4-Week |
|---|---|---|
|
Nortel Networks |
* |
(50.9%) |
|
Morgan Stanley |
** |
(33.7%) |
|
Patriot Coal |
*** |
(37.4%) |
|
Take-Two Interactive |
*** |
(34.8%) |
|
Constellation Energy |
**** |
(59.2%) |
Source: Motley Fool CAPS. Price change from Aug. 29 through Sept. 22.
Nortel Networks
Nothing seems to be going Nortel's way these days -- or all the days in 2007, or 2006, or ... . Stock in the Canadian telecom equipment maker has been on a slide for years now as it continues to lose share to competitors. With customers cutting back spending, Nortel lowered its sales guidance for the third quarter last week and announced plans for further restructuring and cost-cutting. The news has only helped make an ugly situation uglier, and only 69% of the 664 CAPS members rating Nortel Networks expect it to outperform the market, even at today's low prices.
Morgan Stanley
Talk about a case of schizophrenia. In the past week, Morgan Stanley was in merger talks with Wachovia, became a bank holding company, and then announced it would sell up to 20% of itself to Japan's Mitsubishi UFJ Financial Group. But even under the new structure of regulations that should bring its leverage down considerably from its recent level of nearly 30-to-1, CAPS members remain wary, with 391 of the 1,393 members rating Morgan Stanley still bearish.
Patriot Coal
Several months ago, Peabody Energy spinoff Patriot Coal was showing solid momentum because of the tight coal supply. But it and its peers have been in a dive since June as coal spot prices declined as part of a broader energy correction. The share prices of Patriot and peer CONSOL Energy have been pounded by more than 50% since peaking in June. But some investors have many reasons to believe that coal is still hot. More than 94% of the 430 CAPS members rating Patriot Coal see the stock outperforming the S&P.
Take-Two
Electronic Arts recently decided to walk away from its proposed acquisition of Take-Two, and investors reacted harshly, dropping Take-Two's stock more than 24% in a day. But the company's fundamentals keep getting better as Grand Theft Auto 4 and other titles have been selling well. Revenue for the fiscal third quarter more than doubled to $433.8 million, and Take-Two also bumped up its earnings guidance for the year. Even without EA, life is good at Take-Two, and 91% of the 763 CAPS members rating the company expect it to outperform the market.
Constellation Energy
After investor fears about Constellation's liquidity and credit rating hurt its share price last week, the company agreed to be sold to MidAmerican, a unit of Warren Buffett's Berkshire Hathaway
Ultimately, whether or not you believe a fall in any stock is warranted, your own research is more important than collective opinions. CAPS can help you quickly focus your due diligence, and even point out potential pitfalls you may not have seen.
Add your take on these or any of the 5,500 stocks that 115,000-plus members have covered in Motley Fool CAPS. It's totally free to be a part of the community, and the payback is more than worth it.
